Results

1QFY15 net profit (excluding RM208m net profit from sale of ~50% in life and family takaful to MetLife) of RM328.9m (- 29.1% qoq; -28.8% yoy), only accounted for 16.8% and 17% of HLIB and consensus forecasts, respectively.

Deviations

Contraction in loans growth (large corporate repayments and more cautious stance), sharp contraction in NIM (campaigns to lock in deposits ahead of OPR hike in Jul), weak non-interest income and integration costs.

Dividend

None.

Highlights

Excluding the profit from sale, 1QFY15 results were weak due to qoq contraction in loans growth, lower NIM, lower non-interest income, sustained high overheads (due to compliance related costs as well as VSS cost and integration costs) and higher provision (mainly due to sharply lower recovery).

Despite the weak results, management is not changing its FY15 KPIs (inclusive of the profit from sale) and believes that they are achievable. Given that it is guiding for stronger DCM and ECM pipeline ahead, our forecasts are largely in line with its KPIs and its excellent guidance track record, we are not changing our forecasts for now.

Moreover, despite qoq contraction in loans, it is still expecting 7% loans growth for FY15 (albeit lower than the original 9% target). This suggests that, in the absence of large corporate repayments, loans growth would pick up.

Deposits contracted more than loans, taking LDR higher but company believes that liquidity is not a material concern yet as it is moving towards stable type of funding (which we believe is via debt papers).

Asset quality was stable. Despite lower absolute impaired loans amount, impaired loans ratio increased slightly by 1bps to 1.87% due to the contraction in loans. While it will continue to face pressure on HP due to rising cost of living, we are comfortable with its risk management policy.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact from lower capital markets activities.

Forecasts

Unchanged.

Rating

HOLD

Positives – Value propositions from ANZ have improved asset quality, risk management and competitiveness. Improving ROE and higher dividend guidance as well as focus on profitable growth are bearing fruits. Recent mergers and life insurance partnership to enhance recurring non-interest income over longer term.

Negatives – High LD ratio and relatively high earnings sensitivity to capital markets.

Valuation

Maintain Hold and target price of RM7.77 based on Gordon Growth (ROE of 14.3% andWACC of 11.2%).

Source: Hong Leong Investment Bank Research - 25 Aug 2014